Crude turmoil, rouble rout spook India, world markets

A possible repeat of 1998-Russian financial crisis following a 20% fall in the Rouble.

A possible repeat of 1998-Russian financial crisis following a 20% fall in the Rouble, and persistent decline in global crude oil prices spooked global markets late on Monday and Tuesday, leading to sharp cuts in world equities including India. The Indian rupee also declined to 13-month low at 63.53 per dollar.

Indian shares declined 2% on Tuesday, reflecting a similar fall in world indices amid speculations of another financial crisis in Russia after the Rouble went past 80 against the dollar, the first time since 1998 – the year Russia defaulted on its local debt.

The benchmark Sensex lost 1.97% or 538.12 points to end at 26781.44. The 50-share Nifty declined 1.85% or 152 points to end at 8067.60. Broader markets witnessed deeper cuts as “risk off” sentiments forced traders to book profits. The Mid-cap index ended down 2.96% whereas the Small-cap index lost 3.36% from Monday’s closing.

Foreign portfolio investors (FPI) sold about $200 million worth of shares in the cash segment on Tuesday, showed provisional data on stock exchanges. Overseas funds have sold more than $500 million of shares in the last six sessions, including provisional numbers.

Moscow’s main stock exchanges tanked 5-12% as investors shrugged off a surprise Bank of Russia decision to take its key interest rate to 17% from 10.5%. Those in China dropped 1-2%, while Europe’s big developed markets fell as much as 0.5-1% in response to a crisis-like situation in Russia and speculation that Russia may announce capital controls to revive the sharp drop in currency.

Back home, metal stocks were the biggest losers, with Sesa Sterlite (-7.77%) falling the most in 16 months. Hindalco lost 5.67% and JSW Steel ended down 5.6%. Tata Steel lost 2.8% taking the gauge of metal companies down 4.1%.

A section of the industry believes the recent 6-7% drop in Indian markets is “healthy” and “positive”, and the opportunity is a buying opportunity for long-term.

“Economic fundamentals have begun to show some improvement and the outlook for the market and the economy has improved considerably, driven by lower crude prices, which puts India in a relatively better place compared to peers. From being amongst the least preferred markets more than a year ago, India is now amongst the most preferred markets to invest in our view. Notwithstanding the recent geopolitical tensions, we think FII inflows would continue to remain strong,” said Rakesh Arora, MD and head of India research, Macquarie Capital Securites (India).